14 Dec 2020 Ankit Chadha

Here's A Comprehensive Guide to Sarbanes-Oxley (SOX) Audit & Compliance in 2020

SOX Compliance | TRC Corporate Consulting

Let us begin this article by elaborating what is SOX Compliance and how it originated.

The Sarbanes-Oxley Act (SOX) was passed in the year 2002 by the United States Congress to protect the interest of stakeholders, shareholders, and the general public. This act was set up with the hope of discouraging corporate fraud, protecting investors, and refining financial disclosures. It was designed to improve transparency in financial reporting and corporate governance and act upon a comprehensive internal checks and balances system.

The act has established a set of deadlines for corporations to meet compliance and has published a rulebook on the requirements needed to maintain it. Paul Sarbanes and Michael Oxley initiated the Sarbanes-Oxley Act to safeguard corporate governance and accountability from financial scandals.

Why SOX Compliance Is Important?

SOX compliance is the best way by which you can protect the internal financial systems. It is compulsory for the companies to comply with SOX compliance for their financial and IT departments. SOX has completely transformed the way the IT departments store electronic records. Legislation cannot define the way businesses need to store records; it dictates which records are important to store and for how long.

To effectively meet SOX compliance requirements corporations, need to save all their business records, including electronic records and messages, for at least five years. Corporations can keep their sensitive data safe from theft and cyberattacks by implementing SOX financial security controls.

Who needs to comply with SOX?

All the publicly traded companies and that do their business with the United States need to meet SOX compliance. The core responsibility of an IT department is to create and maintain corporate records. They should be able to prove compliance by providing documentation that ensures the employer has met the mandatory data security thresholds.

It is the IT department's primary responsibility to be familiar with access privilege and log management standards so that they can align with SOX rules and regulations. They should look for cost-effective alternatives that fulfill the need for SOX compliance. Rules that can have a great impact on records management are as follows:

Rule 1: It can result in penalties if records are altered or modified due to any reason.

Rule 2: It clearly defines the holding period for record storage.

Rule 3: It defines the type of business record that needs to be stored.

What Are The Benefits OF SOX compliance?

SOX compliance has brought a major change in the companies' internal controls. They have started prioritizing risk management and how the compliance needs to be aligned with business objectives to sustain business core values.

  • Prioritizing Risks
  • Improve Performance of Audits
  • Strengthening Internal Business Control
  • Centralized Financial Reporting
  1. Prioritizes Risks

Organizations like to have an integrated view of business risks and objectives. By incorporating comprehensive risk/event management procedures, businesses can achieve transparency and corporate-wide visibility of processes to help in the timely mitigation of risks. These tools help in monitoring the overall operational performance and keep your business secure by increasing anti-fraud activities.

  1. Improves the Performance of Audits

The establishment of the Public Company Accounting Oversight Board (PCAOB) for assessing personal liability has decreased the gap between the purpose of audits and their fulfilment.

PCAOB was introduced to manage accounting decisions. To efficiently evaluate the operational effectiveness of the risk management measures adopted by the organizations and government control processes, it made audits.

  1. Strengthens Internal Business Control

According to Section 302 and 404 of SOX, there is a requirement for the documentation of controls, including recorded control processes, operation manuals, and personnel policies. Still, the majority of organizations find the process overwhelming and expensive.

With a standard framework, organizations can build up their internal control structure and streamline the documentation of various control processes. Strengthening internal business control results in enabling efficient operations and reliable financial reporting.

  1. Facilitates Centralized Financial Reporting

Businesses need to undergo extensive tests of internal controls and certifications of accuracy to meet SOX compliance. This allows the businesses to maintain the standard quality of financial reporting, automate, and centralize it.

Businesses should invest in risk management tools that assure financial accuracy and meet compliance, leading to business continuity and growth.

SOX Compliance Audits

A SOX compliance audit is a measure of a company’s financial statements and how well it manages internal controls. Internal control is defined as any type of protocol that deals with the infrastructure that takes care of a company’s financial data.

In terms of the financial statements, auditors compare current accounts with the past reports to verify that everything is in place to maintain SOX compliance requirements standards. To complete the audit, companies should hire independent SOX auditors.

SOX audits typically include the verification of the organization’s financial statements. It is the auditors' responsibility to compare past statements with the current financial statement and determine whether the results are satisfactory. Auditors are allowed to interview employees to ensure regular duties match their job profile.

SOX Compliance Requirements or SOX Compliance Checklist

Some necessary requirements of the SOX Compliance checklist are as followed:

  • Establish Protections to Prevent Data Tampering

Enforce systems that track user logins and identifies suspicious login attempts into systems containing confidential data.

  • Establish Processes to Record Timelines

Implement systems that timestamp all data as and when it is received. This data should be stored off-site as a control measure to avoid data theft, loss, or alteration.

  • Establish Confirmable Controls to Track Data Access

Set up systems that can receive data from various organizational sources such as databases, FTPs (File Transfer Protocol), and associated files. Control systems should also track who has accessed or edited the data, be it on a drive or the server.

  • Ensure Protections are Tested, Verified, and Operational

Implement procedures that send daily reports to specific officials notifying them that the SOX methods are tested, verified, and operational. These procedures should also give access to auditors to permit them to view reports and data.

  • Consistently Report the Efficacy of the Safeguards

Establish systems that can generate reports regarding critical alerts, messages, reports, and security activities and problems that occurred and how they were solved.

  • Detect Security Breaches

Enforce security systems capable enough to analyze incoming messages or data, recognize symptoms of a data breach, and generate alerts to the incident management notification centre.

  • Disclose Security Details and Security Malfunctions Or Failures to External SOX Auditors

Implement critical systems that can record security infringements or security events that take place. These instances are reported to the external SOX auditors who have the permission to view and study them.

SOX Compliance with TRC Consulting Services

It’s that same time of the year where your company has to test or audit its SOX compliance, do not stress about it. At TRC Corporate Consulting, we offer an extensive range of GRC services, SOX Compliance, SOX Audit, and other critical audit functions.

Our experts at TRC, with their pragmatic experience and deep domain knowledge, helps in delivering pioneering solutions for business consulting, outsourcing, compliance, and financial management services to clients across all industries. If you have any questions regarding SOX compliance testing and audit, contact our team today!

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